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Government's response to its Equitable Life failures is "shabby" and "morally unacceptable"

19 March 2009 / by Rachel Mason

The Government's response to a report on its regulation of Equitable Life was "shabby, constitutionally dubious and procedurally improper," said MPs yesterday.

The Public Administration Select Committee (PASC) said the Government's admission that public bodies were responsible for maladministration which caused injustice to Equitable Life customers while arguing at the same time that it is under no duty to do anything about it is "morally unacceptable".

Nine years ago, policyholders at Equitable Life saw the value of their savings and private pensions slashed by £4billlion.

Ann Abraham, the Parliamentary Ombudsman, investigated the case and her report revealed that poor regulation was partly to blame for Equitable Life's failure.

The Government finally admitted that policyholders were victims of maladministration and that they should be compensated, but refused to compensate all those policyholders who had lost out, instead proposing an "ex-gratia payment scheme" that would be means tested and "focus on those who have been hardest hit."

The PASC says it is "deeply disappointed" with the response, saying "we struggle to understand the logic behind the Government's decision to make payments to policyholders on an ex-gratia basis rather than as compensation."

PASC says that although the Government has accepted that public bodies were responsible for maladministration which caused injustice to people, it is arguing at the same time that it is under no duty to put right these wrongs, even in part, and states, "this may be a legally valid position, but we think that most people would consider it to be a morally unacceptable one."

Committee chairman Tony Wright MP said that he gives credit to the Government for apologising, for producing a considered response, and for accepting the need for some kind of payments scheme, but through its "essentially political response to a quasi-judicial investigative report" has ended up "satisfying nobody".

"We have never argued that the taxpayer should have bottomless pockets," he said, "but there is a very clear case for defined compensation where the State itself has caused injustice.

"The Government’s arguments seem to me to leave a gaping black hole in the way our regulators are held accountable, and this needs addressing."

Policyholder groups are likely to ask for a judicial review of the Government’s decision, but Mr Wright urges them to "think hard about whether it will be in the best interests of the people they represent."

"A successful judicial review could lead to a better process," he said, "but with no guarantee of a better outcome for policyholders."